Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group fourth quarter 2024 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Will Thoretz for his opening remarks and introduction. Mr. Thoretz, please go ahead.

Thank you, operator. Hello and good morning. My name is Will Thoretz. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's fourth quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I would like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factor section in ISG's Form 10K covering full-year results. You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures which we will touch on today include adjusted EBITDA, adjusted net earnings, and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I would like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike?

Thank you, Will, and good morning, everyone. Today, we will review our strong Q4 results, our further improved balance sheet, trends we are seeing in the market, and our outlook for Q1. ISG finished the year with a strong fourth quarter. We began the quarter by selling our automation unit for more than $20 million in cash, which significantly improved our balance sheet. We delivered revenues of $58 million and adjusted EBITDA of $6.5 million, improving our EBITDA margins by more than 200 basis points from a year ago. With our strong cash position, we further reduced our debt by $7 million in the quarter. For the year, total debt reduction was 25 percent or $20 million. When you combine the $7 million of debt reduction with dividends of $4.5 million and share repurchases of $2.3 million, we created almost $14 million of value in Q4. On an operating basis, our profitability improved with adjusted EBITDA up 11 percent. This is due to our disciplined operating approach our higher utilization in Q4 up more than 700 basis points year over year, and our improved business mix. Our focus on operational excellence also is reflected in our strong cash flow from operations. With $6.6 million in Q4, coupled with nearly $9 million in Q3, we generated over $15 million in cash in the last two quarters. On the top line, Revenues in our largest region, the Americas, were up 6% versus the prior year, excluding automation. This is an early sign of the improving market conditions we expect in 2025, starting here in the U.S. And our recurring revenues for the quarter were 45% of firm-wide revenues, led by our GovernX supplier management platform. For the full year, excluding the automation unit, recurring revenues were $108 million. A few weeks ago, we announced a strategic repositioning of our firm, reflecting the expanding role ISG is playing in helping our clients adopt AI at scale. We are now positioned as a global AI-centered technology research and advisory firm. This new description captures our two-year journey thus far of deep AI investments in our people, platforms, and products to help enterprises navigate the biggest inflection point in a generation. AI is at the heart of everything we do, from the technology strategies we develop and the partners we recommend to our clients, to the impact of AI on the future of work. We have truly become an AI-centered firm. ISG has served more than 100 clients with AI-focused research and advisory services over the past 12 months. We expect this number to double in the year ahead. We are working with our clients to set AI strategy, create AI-ready infrastructure and data, build AI provider ecosystems, and establish AI governance frameworks. ISG Research, meanwhile, has produced detailed AI market surveys and analysis covering both the service and software provider ecosystems. We expect these AI-related activities to become an increasingly important component of our business over the next two years. Growth will accelerate as enterprises move beyond the planning and experimentation phases and begin to adopt AI more broadly across their organizations. At the same time, ISG is leveraging AI to improve the speed and efficiency of our proprietary client platforms, most notably ISG Tango, our groundbreaking sourcing platform launched last year. More than $7 billion of sourcing contract value now flows through ISG Tango, up 40% from the third quarter. Looking ahead, we believe our investments in sourcing, AI, and software position ISG for strong growth. Before I turn to our regions, I want to emphasize that our US public sector business has no US federal government exposure. It is focused solely on state and local governments. I also want to share some comments on two key trends we are seeing in the market that should benefit ISG. First, a resurgence in cloud transformation. We are engaging with clients on their accelerated AI-driven cloud adoption and infrastructure investments. With added momentum to push even more infrastructure and applications to the cloud, the market is moving right into a sweet spot for ISG. Second, we are seeing market hesitation lifted. There is a greater degree of certainty that tax cuts will be extended, geopolitical conflicts are directionally heading toward a positive conclusion, and inflation and labor costs are becoming more manageable. Of course, the real impact of tariffs is not known, but we see clients sourcing larger and longer duration contracts to optimize costs, thereby bringing crucial discretionary spend for more investments in AI-driven transformation. This is right in our power alley. In short, we are optimistic about our prospects. With that, let me turn to our regions. Bear in mind that the comparisons I cite here are versus the prior year and exclude automation revenues to provide a more accurate view of our ongoing business. In the Americas, revenues were $38 million, up 6%. During the quarter, we saw double-digit growth in banking, the public sector, manufacturing, energy, and the utilities industry verticals, and in our consulting and GovernX businesses. Key client engagements during the fourth quarter included Carnival, PSE&G, and Syncora, formerly Amerisource Bergen. AI continues to be embedded in almost everything we do with our clients. Many of our client engagements, including those I mentioned here, have strong elements of AI, including adopting artificial intelligence for IT operations, or AIOps, as part of sourcing strategies, designing operating models to integrate AI, and understanding the productivity and financial impacts of AI. In the healthcare sector, for example, ISG ran a major sourcing engagement for a large healthcare solutions company. We advised this multi-million dollar client on its transition to SAP's S4 HANA and developed a strategic roadmap for sourcing infrastructure and security services, leveraging AIOps. We also delivered a multi-tower sourcing engagement for a large regional healthcare provider using our ISG Tango platform, part of a multi-million dollar series of engagements with this client. After a successful assessment phase, we have continued our training as a service work supporting a major aerospace and defense company in its transition to SAP S4 HANA. This significant multi-million dollar contract covers the training of tens of thousands of employees across four major business units of this company. AI will be leveraged here to improve the delivery efficiency of our services. Turning to Europe, the European market remains cautious in the face of challenging macro conditions, but we expect improvement later in the year as demand begins to rebound. Q4 revenues of $15 million were down 15%. Europe was led by double-digit growth in our insurance industry vertical in the quarter. Key client engagements in Europe in the third quarter included Volkswagen, Allianz, and Barmer. During the quarter, ISG provided change management, benchmarking, and software services to a new client, a large European insurance company, and is currently working on an infrastructure sourcing engagement involving multiple towers. Again, incorporating AIOps to drive efficiency gains and cost savings. This client will soon cross the $1 million threshold in revenues with further growth anticipated this year. We also expanded our work with a large engineering solutions and construction firm to support the client's overall digital transformation. Our multi-pronged engagements include IT sourcing, supplier management, cybersecurity, and data governance, as we support this client in leveraging AI across its organization. Now, turning to Asia Pacific, we had Q4 revenues of $5 million, down $1 million from last year. During the quarter, Asia Pacific delivered double-digit revenue growth in our banking, consumer services, energy, utilities, and health sciences industry verticals. Key clients for the quarter included IEMO, the Australian Energy Market Operator, Endeavor Group, and AGL Energy. During the quarter, we worked with one of Australia's leading regional banks to support its digital banking strategy. This included helping them select a provider to modernize the bank's IT services with AIOps and supporting its transition to the cloud. Now, let me turn to guidance. As I mentioned last quarter, we are seeing positive signs that demand for technology services is picking up as we expected, most notably in the U.S., where our pipeline is strong. ISG is well positioned to capitalize on our market opportunities. We have the AI expertise and sourcing capabilities, along with unmatched software and services research. to guide our clients through the next technology wave powered by AI. So for the first quarter, we are targeting revenues of between $58 and $59 million, and adjusted EBITDA between $6.5 million and $7.5 million, or at least 45% higher than the first quarter last year. Our guidance reflects the expectation that growth will continue to accelerate in the Americas, with Europe picking up later in the year. So with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?

Thank you, Mike, and good morning, everyone. Before I start, I just want to reiterate that all of our revenue comments this morning will compare fourth quarter 2024 revenue to fourth quarter 2023, excluding automation. We think this provides a more accurate view of our business performance going forward. For the fourth quarter, revenue was $57.8 million, down 2% versus the prior year. Currency had a $300,000 positive impact to revenue in the quarter. America's revenue was $37.9 million, up 6%. Europe revenue was $14.9 million, down 15%. And Asia-Pacific revenue was $5 million, down 16%. Fourth quarter adjusted EBITDA was $6.5 million. up 11% from $5.9 million in the year-ago period, resulting in an EBITDA margin of 11.3%, up a solid 240 basis points from 8.9% in the year-ago quarter. This improvement in profitability allowed us to deliver absolute EBITDA dollar growth despite the year-over-year decline in revenue. ISG had a fourth-quarter operating income of $200,000 compared with an operating loss of $3.5 million in the prior year. I would note that these results included transaction costs of $2.2 million for the automation divestiture. Adjusting for these costs, operating income was $2.4 million. Our reported net income for the quarter was $3 million or $0.06 per fully diluted share, compared with a net loss of $2.9 million or $0.06 per fully diluted share in the prior year. Our 2024 results included a net gain of $2.3 million on the sale of our automation unit. Excluding this gain, our GAAP EPS was $0.01 per share. Fourth quarter adjusted net income was $3 million, or $0.06 per share on a fully diluted basis, compared with adjusted net income of $3.1 million, or $0.06 per fully diluted share, in the prior year's fourth quarter. Headcount as of December 31, 2024 was 1,323, down 195 positions compared with the prior year, primarily due to the sale of our automation unit. For the quarter, consulting utilization was 72% as compared to 65% in the prior year. Net cash provided by operations for the quarter was $6.6 million as compared to $9.7 million a year ago. Importantly, for the year, operating cash flow was $20 million, despite the drop in revenue, a very strong result. We ended the quarter with cash of $23.1 million, up from $9.7 million at the end of the third quarter. During the quarter, we paid down an additional $7 million in debt, bringing the total 2024 paydown to $20 million and our year-end debt level to $59.2 million. For the quarter, our average borrowing rate was 7%, consistent with last year. During the quarter, we paid dividends of $4.5 million and repurchased $2.3 million of stock. Our next quarterly dividend will be paid March 28th to shareholders of record as of March 21st. Our fully diluted shares outstanding for the quarter were $50 million, and at quarter's end, we had approximately $18.3 million remaining on our share purchase reauthorization. Overall, we have a solid balance sheet that provides us with the flexibility to support our business over the long term. Mike will now share concluding remarks before we go to Q&A. Mike?

Thank you, Michael. To summarize, we delivered a strong quarter with Q4 revenue and adjusted EBITDA both at the high end of our guidance. Adjusted EBITDA was up 11%, and the Americas, our largest region, returned to growth with revenues up 6%. Recurring revenue remained strong, representing 45% of our firm-wide revenue. We delivered strong cash flow and strengthened our balance sheet with the sale of our automation business. Our strong cash position allowed us to lower our debt by $7 million in the quarter, 25% for the year. And with dividends and share buybacks, we created nearly $14 million of value in the quarter. AI is at the center of everything we do at ISG. And this bodes well for our future as we capitalize on the AI-driven wave of growth that will accelerate in the months and years ahead. As always, we are focused on creating shareholder value for the long term, and we are steadfast in our mission to deliver operational excellence to our clients. So thank you very much for calling in this morning. And now let me turn the session over to our operator for your questions.

Thank you. Today's question and answer session will be conducted electronically. If you'd like to ask a question, you can do so by pressing star and 1 on your telephone keypad. If you find your question has been answered and you would like to remove yourself from the queue, you may do so by pressing star 1 again. And again, if you would like to ask a question, you can do so by pressing the star and 1 on your touchtone keypad. And we'll go first to Joe Gomes at Noble Capital Markets.

Good morning. Thanks for taking my questions.

Good morning.

Mike, you touched on this a little bit in your prepared comments, but maybe you could expand on it a little bit. There's this uncertainty in the economy, the federal government going back and forth on what they're doing is not helping confidence out there and you know, a lot of other industries or companies we've talked to, we're kind of frozen in place, you know, in the decision making, because they're not seeing that long term stable situation. And just what what's going to get given you guys the confidence that things are improving and will continue to improve?

Yeah, good. Thanks, Joe. Look, here's how we are seeing the market today versus even a quarter or two ago. Number one, the elections are done in the U.S. That creates certainty. You know who it is. You know kind of what his policy directions are, corporate tax, overall tax, et cetera. We know that the tariffs are sitting out there, and they're a bit of an unknown. And from our standpoint so far, we're not in the middle of that prey. We actually think there may be a beneficial side to this kind of tariff noise, I'll call it, in the markets. And that's because our cost optimization offering is thriving now, as some companies that may be more impacted by tariffs if they hold, consumer, et cetera, are looking for ways to be more efficient to take costs out now. And that has expedited in here in the United States, and you're seeing that with the growth in the fourth quarter, and I think you will see that as we move into the first quarter. So although tariffs, as an example, are putting some cost pressure on some enterprises, we think that the driving of the cost out to either free up money for further transformation or to drop it to the bottom line is a net positive for ISG. Then we look at some of the industries and where they are now versus where they were even a quarter or so ago. The banking and financial services industry in the United States was up 24% in the quarter for us. That is the first time that's turned to double digits in a number of quarters. They are moving, even despite some of the kind of noise in the market. They feel like there's certainty in terms of direction, not necessarily a certainty on all aspects of tariffs, et cetera. We're also seeing an energy and utilities up 23% in the quarter. Health science is just under 10%. Manufacturing in the U.S., not automotive, but manufacturing broader was up 24%. And media or the public sector in the U.S., and remember, we only have local, state and local. We do no work for the federal government, so we're not part of the whole Doge thing. We saw the public sector up 17% in the quarter as they're looking to utilize AI to become more efficient in a number of the states. So when we look at all of that for the US, that gives us a high level of confidence that we expect an acceleration. Europe is still a bit subdued, primarily driven by the whole geopolitical environment. You saw that the EU took down the rates a quarter point this week. So there's still a bit more uncertainty in the European market driven somewhat by the political atmosphere and what all that means in terms of spending. But I will say our defense and our public sector business in Europe is strong as some of those countries begin to look to put more money into areas like defense. So, Joe, that's how we think about it. That's what we're seeing now in the market, and that's different from a couple of quarters ago. I hope that helps.

Very much so. Thanks for that. And just one more follow-up for me. It's kind of a dual question. Obviously, you know, with the sale, you now got, you know, a nice little cash kitty sitting on the balance sheet. You know, you've talked about doing some more debt pay down. You know, you've talked in the past about, you know, keeping an eye out on the M&A environment. Just kind of maybe rank, you know, as you're looking at this year, the uses of cash for you guys.

So the way we think about it, our debt is sitting at around 2.4 times today. That's going down to hover around two as we evolve here in the first half of this year. I think we guided before that we're very comfortable kind of toggling between kind of two and two and a half. I don't know that I would see the need to take our debt down anything levels below that. So therefore, it frees up use of cash. We're looking at two areas, M&A and stock buyback at the rates that the stock is. Of course, we're limited on volume levels that we can purchase, but we will be and are aggressive in the market for that. But also on the M&A front, we continue to look at areas that can help accelerate where we're headed on the whole digital and AI front. So anything that we can drive toward recurring revenues is also, of course, of interest for us. So that's how we would think about it. So think about it more on the M&A and the buyback front with the debt being kind of going to be closer to kind of the two level, if you will, as we go through the first half of the year. We'll feel very comfortable kind of where those levels are when you look at what our EBITDA will improve at.

Does that help? Great. Yes, it does very much. Thanks. I'll get back in queue.

Thanks, Joe.

We'll move next to Vincent Colicchio at Barrington Research.

Yeah, good morning, Mike.

Good morning, Ben.

Could you give us a bit more color on the sales pipeline in the Americas, sort of, you know, what areas are strongest there?

Yeah, so I think for the U.S., what we're seeing is kind of two buckets. Our cost optimization bucket, which has always been pretty steady, has picked up. I think I mentioned with the tariffs, certain industry segments like consumer, I think are thinking that they may be felt harder than maybe even some of the other industry segments. So we're seeing a pickup as it relates in a few industries to accelerate the cost optimization. But importantly, I think in a number of the other industry segments, the idea to be able to utilize AI to become more efficient in their operations is increasing. You'll recall that our view has been that the transformation side has been somewhat paused because of the macro environment. with some certainty with the elections having taken place, I think that some industry segments, and you can tell by the growth in the U.S. and some of the segments I mentioned, are now feeling like they can begin to pursue and accelerate the transformation that includes an AI transformation in those companies. So from our standpoint, the cost optimization and now an increasing level to work on AI and digital transformation is will be the catalyst for the U.S. business over the next few quarters. Europe will be a bit slower, and Asia Pacific will not kick in, I think, until the government spending returns with the elections happening in Australia in a couple of months. I think we'll see that happen during the back half of the year once that gets settled down in that region in Australia. So that's how we look at it, Vincent.

And, Mike, Sherrick, what was the utilization rate number you cited? I missed that.

Utilization was 72% up from 65 a year ago.

Could you remind us what level you're comfortable with at the upper end?

Yeah, I mean, you know, low to mid-70s, we're definitely, you know, remain comfortable. You know, we're running, I wouldn't call it, you know, overheated, but it's definitely hot as you get up towards those levels.

And, Mike, any comments on APAC thoughts on how that will progress this year?

Yeah, I think it's going to be driven by the return to government spending in Australia. It's been slowed. They have elections coming up in the April-May timeframes. everybody's kind of pulled back. There will be a new budget year coming up about the middle of the year. And once that returns, then our commercial business is good. We just need some more spending on the government side, and I think that you'll see the return to growth there. So think about the second half there.

Okay. I'll go back to you. Thank you.

Thanks, Ness.

We'll take our next question from Mark Riddick at Sedoti.

Hey, good morning. Good morning.

I wanted to touch a little bit on maybe spend some time on the strategic repositioning and sort of how that might flow as far as throughout the year as well as maybe go-to-market strategies and things of that nature and sort of maybe what you've already done. Maybe I should take a step back. What you've already done in that vein and then what we should expect to see going forward.

Yeah, no, good question. Look, let me give you some of the areas that we have been investing in and now are becoming more and more part of our business and why we reposition. You know, we have in our research area, We have now flooded, if you will, the market with AI-specific information around what we call market guides, buyer's guides, our provider lens to understand for enterprises, you know, where is AI going? What is actually out in the market? What are the ecosystems being built? There is a lot of written thought research leadership out in the market for us. We started with the first state of the Gen AI report two years ago. Those have all been updated. Our Tango platform is AI-powered. That now has over $7 billion of contract value driving through that. That will get up into double-digit billions as we go through the year. The AI advisory business that we launched a little over a year ago, that is what is driving a lot of our advisory work, especially in the U.S. and in Germany and the U.K. Clients have a high appetite in demand. That also will help us because our pricing will remain firm there because it's in higher demand. Our benchmarking, we have great data now over the past year, 15 months into our database around how AI is improving efficiency. And so when we're in front of enterprise clients, we can say with confidence what type of cost reductions they could expect with their partners using AI in terms of operations. We've launched AI impact summits to get enterprise clients together to exchange kind of best practices. We've trained up our entire 1,200 people that are facing clients with AI certification so that they're well-versed in this area as best as you can be. So as we think about all of those areas, that's how we've now become so AI-centered as a firm, and that's why we kind of defined our repositioning because it's now into everything that we are doing that clients are demanding from us. So that's how we think about it, Mark.

That's really helpful. Thank you. And then I wanted to just double-check something timing-wise. So the sale of the automation unit had the component of the $20 million initially, and then there was the second, I think it was $4 million or so. There was a timing thing there. Does the cash balance at the end of the year, did that include that $4 million, or was the $4 million afterwards, or how should we think about that?

Yeah, so Mark, it's Michael. So you're spot on. So it was $20 million up front. There was a $7 million escrow. $4 million has been earned. Of the four, two has been collected. So there's $2 million of the escrow that at year end was sitting on the balance sheet as a receivable. So that'll be received in the first quarter.

Gotcha. Okay.

Excellent.

Thank you very much. Thanks, Mark.

Our next question comes from Dave Storms at StoneGate. Good morning.

I appreciate the questions. Good morning, Dave. Just wanted to start with recurring revenue. It looked like it was flat quarter over quarter. I just wanted to kind of see what you thought your visibility was going into 2025, how this recurring revenue might change with, you know, maybe upcoming contracts come to term, renewals, how the pipeline looks overall, anything of that nature.

Yeah, it's Michael. So excluding automation, which is how we're looking at it, on an absolute level, you're right, it was flat, which is not anything that would be surprising or of concern to us. It has to do with just timing of contracts and how things come on. So when you think about it again, that segment, that piece of our revenue is heavily concentrated in things like GovernX, our research business, the long-term public sector contracts, So we remain very optimistic. I mean, Mike highlighted the growth in public services. We expect a continuously strong growth there and across the other two that I mentioned as we look at 2025. So we're looking for, you know, continued year-on-year growth in the recurring revenue absolute in 2025.

Very helpful. And then just one more for me. You mentioned a couple of key end markets, like banking, you know, the APAC government fund. strengthening throughout the year. Is there any other end markets that we should be keeping an eye on looking through 2025?

I think energy. I think utilities. Think about all the what AI needs to be powered up. I think we're going to see both of those be quite healthy. I think the whole health sciences area will continue to You'll see some real health there. I think on the technology front, you'll see that. So think about the Googles and the Salesforce, et cetera. You'll see that. I think the weak part will be automotive. and a combination of the electric vehicle and what does that mean and, you know, how does that proceed and tariffs and all those things. I expect that component of manufacturing, I would expect to be weak and possibly consumer, depending on what happens with the tariffs. So, you know, I gave you the positive ones, and I would say those might be the two might be lighter ones during the course of the year.

And we'll go next to Gaoshi Sriharan at Singular Research.

Good morning. Can you hear me? We can, thank you. All right, good morning. Thanks for taking my call. So I apologize if you might have covered this in your prepared remarks. I had a slight technical difficulty. But in terms of your AI with 100 clients already served in the past year, Could you help us share some of these AI-centric conversations that are maybe translating into committed revenue streams? Are crimes moving beyond the exploratory phases into multi-year contracts, and what percentage would you say are doing that?

Okay, look, good question. Yeah, so what we are seeing around the whole AI is because of the efficiencies of using artificial intelligence to help automate. There's both a speed and there's a cost element, and we are seeing that now in almost every transaction that we are working with our enterprise clients. We've been working with a chip maker, a major utility company, a gasoline retailer in Canada, financial services companies, global hospitality and entertainment companies, a Canadian bank, insurance companies, all of them now are looking on how AIOps uses AI, including kind of Gen AI,ogenic AI, to help automate the operations. And what that is doing is because of the efficiency, we are seeing the contracts are going to go a little longer in its length because they can take advantage of some of these cost efficiencies and they want to take them a bit longer. So we're seeing the size of the contracts a bit larger, the length of the contracts being a bit longer, and we reflected that in our ISG index call that we did with the industry in January. So those are the trends that we're seeing and I expect those to continue through the year.

Okay. Thanks for that.

And in terms of APAC and Europe, I know you guys mentioned that there's probably kind of a wait and see on your end as the markets there improve. But is there a case for investment on your side? Is the brand perception in the U.S. much better for ISG than maybe in Europe is not as – as strong? Is there a case for a reinvestment of the brand for Europe APAC?

No, I would say our brand is strong globally. I mean, we are one of the key players in Germany, which is the biggest market in Europe, for example. We're strong in France, we're strong in Italy, and we're strong in the UK. So I don't think the brand has any impact at all. I think that the overhang is the geopolitical environment that is holding back spending by some of our enterprise clients in Europe. And as I mentioned in Asia Pacific, it's just a matter of when the government spending picks up in Australia, in Canberra, and we expect it to pick up post their elections, which are before the end of the second quarter. So that's how we would think about and why we would see that Asia Pacific and Europe will lag the U.S. acceleration But, of course, the U.S. is our bread and butter business right now in our firm.

Awesome. And you mentioned training as a service kind of becoming scalable. Is this becoming a standalone, high-margin revenue line? You know, what's the kind of the plan for this offering, you think?

Yeah, so that's a good question. So we call it TAS, training as a service. It's a recurring revenue stream. It's multi-year. And what we do, we go in and we help large enterprises understand the technology change. So think about it from a change management standpoint. And then when there is change, like S4 HANA, for example, large installation with a top two, you know, aerospace company, then all the people need to be trained and educated around the new technology. And so they will contract with us for a multi-year to train them and basically training as a service with how we sell it. So yes, that is a component of our recurring revenue growth out into the future. We are very bullish on that.

Will that be tied in with the AI story?

Yes, I mean, we are using AI Actually, AI makes it efficient for us to scale our TAS business. So we're able to use AI to help on training, the development of training materials, information, and then the delivery of that training. So, yes, AI is enabling us to take this TAS concept that we had two years ago and now begin to scale it.

Awesome. Awesome. Thank you so much, guys. Congratulations. That's all I have.

Yep. Thank you for the call.

And we'll move next to Mark Riddick with Siddoti.

Hey, guys. I realized I forgot to ask one thing, and I was wondering if you could spend some time talking about what you're seeing with – the potential for acquisitions and acquisition pipelines currently and maybe what you're thinking about for what you're seeing out there valuation-wise. Has there been any, you know, opportunities that are kind of beginning to uncover now relative to maybe three to six months ago?

Thank you. Okay, good question. Yes, we are active, as you know. We've done 14 acquisitions. in our firm here and we are always in the market and we are active discussions and we are focused around all things digital, all things AI, all things around recurring revenue. So if we feel like we can accelerate our growth or fill some gaps like we did with the purchase of Ventana Research about 18 months ago around software and the economy, we're gonna jump on that. In terms of values, I mean, as always, sellers think it's worth more than the buyer. So nothing's changed on the dynamics there. I would say that, to me, the valuations that are in the market are pretty fair. I would just characterize them as so. if we were able to find something that made sense and we can do it at a win-win and a fair evaluation as we always do, we would jump on it. So, you know, I think the market is pretty good. It's pretty ripe. It's picking up. And I think from valuations to me, they're pretty fair.

Excellent. Thank you very much.

Thanks, Mark.

And I'm showing no further questions. I'll turn the call back to Mike Connors for his closing remarks.

Yep. Well, thank you. Let me close by saying thank you to all our professionals worldwide for our continuing progress and for their collaboration and unwavering dedication to our clients in driving our long-term success. Our people have a passion for delivering the best advice and support to our clients as they continue their AI-powered transformations, and I could not be prouder of them. And thanks to all of you on our call today for your continued support and confidence in our firm. And have a great rest of the day.

This does conclude today's teleconference. You may disconnect at any time.